Washington, DC (Wednesday, July 26, 2017): Gross output (GO), the top line of national accounting that measures spending at all stages of production, continued to increase much faster than GDP in the first quarter 2017, indicating a continued strong economy for 2017. Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University, states, “First quarter GO suggests that a robust economy, despite a slowdown in GDP.”

Based on data released on Friday, July 21, 2017 by the BEA and adjusted to include all sales throughout the production process, nominal adjusted GO (GO*) increased at an annualized rate of 6.0% in the first quarter of 2017, which is just slightly lower than the previous quarter’s increase of 6.2%[1]. Nominal adjusted GO for the first quarter of 2017 increased substantially faster than 3.3% GDP growth and faster than the 5.6% growth of the unadjusted GO reported by the BEA.

Real GDP, the bottom line of national income accounting, rose at an annualized rate of 1.4% in the first quarter 2017. Real GO* continues to grow much faster at a 2.5% rate.

Skousen states, “By focusing solely on final spending and the end of the economic chain, GDP can sometimes be a misleading indicator of economic performance. GO is a much better, more comprehensive view of total economic activity along the entire supply chain, and indicates a much more positive outlook.”

Moreover, according to a recent study by David Ranson, chief economist at HCWE & Co., GO anticipates changes in GDP by as much as 12 weeks in advance and thus serves as a reliable leading indicator: http://www.hcwe.com/guest/EW-0717.pdf

The Skousen B2B Index, a measure of business spending throughout the supply chain, continued growing at a brisk pace in the first quarter 2017. This continued growth indicates a sustained business activity recovery that started in the fourth quarter 2016 following the November presidential election of Donald Trump and continued through the first quarter of President Trump’s administration. In the first quarter, B2B transactions rose at an annual rate of 6.6% in nominal terms or 3.12% in real terms. Over the past two quarters – Q4 2016 and Q1 2017 – business spending increased a total of 15%. Last time that the Skousen B2B Index showed a business spending growth of 15% or more over two quarters was in the beginning of 2014.

After breaking the $40 trillion mark for the first time in the previous quarter, adjusted GO rose to $41.2 trillion and reached another first by exceeding the $41 trillion mark in the first quarter 2017. The current adj. GO is more than double the size of GDP ($19 trillion), which measures final output only.

The overall growth of GO resulted from the growth of almost all individual industries and sectors – especially industries in the early stages of production. Increased spending in the early stages, which tend to be leading economic indicators, is a good indication that the overall economy should continue expanding over the next few quarters.

Supply Chain Activity Continues Increasing

Out of the 29 Industries and sectors defined within GO, 26 sectors rose compared to the previous quarter. The mining sector followed a 30.2% annualized growth in the fourth quarter 2016 with a 62.7% boost in the first quarter 2017. However, the mining sector accounts for just 1% share of total GO, which diminishes the impact of this large increase on the overall GO. On the contrary, the manufacturing sector is almost a fifth of total GO (18% share). Therefore, the 6.3% annualized growth of the manufacturing sector has a much greater positive impact on the total GO. With a 9.6% annualized growth rate, non-durable goods outpaced durable goods, which rose at 4%.

Another sector with an 18% share of GO is the finance, insurance, real estate, rental and leasing sector. In the first quarter, this sector grew at a 6.7% annualized rate in nominal terms, which is 71% higher than the 4% increase in the fourth quarter 2016. The real estate, rental and leasing subsector, which accounts for 11.4% of total GO by itself, rose 5.6%

Compared to the previous quarter, spending fell in only three sectors. The largest drop of 12.7% is in the utilities sector. The arts, entertainment & recreation sector is down 3.6% and management of companies and enterprises fell 1.8%. However, these three sectors combined account for just 4.1% share of the total GO. Therefore, the negative performance of these few sectors could not dampen the continued growth of the GO overall.
Total government spending (11% share of total GO) increased 3% in the first quarter. While that growth rate is not particularly high, it is 50% higher than the previous quarter’s growth rate of 2%. The federal government grew at an annualized rate of only 0.5% in nominal terms and state and local government grew at a significantly higher rate of 4.1%.

Gross output (GO) and GDP are complementary statistics in national income accounting. GO is an attempt to measure the “make” economy; i.e., total economic activity at all stages of production, similar to the “top line” (revenues/sales) of a financial accounting statement. In April 2014, the BEA began to measure GO on a quarterly basis along with GDP.

Gross domestic product (GDP) is an attempt to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government. GDP is similar to the “bottom line” (gross profits) of an accounting statement, which determined the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP. During the financial crisis of 2008-09, GO fell much faster than GDP, and afterwards, recovered more quickly than GDP. Still, it wasn’t until late 2013 that GO fully recovered from its peak in 2007. The fact that the adjusted GO continued to grow faster than GDP is a positive sign.

Business Spending (B2B) Grows Faster Than Consumer Spending

We have also created a new business-to-business (B2B) index based on GO data. It measures all the business spending in the supply chain and new private capital investment. Nominal B2B activity increased 7.7% to $23.75 trillion. Meanwhile, consumer spending rose to $13.1 trillion in the first quarter, which is equivalent to a 3.4% annualized growth rate. In real terms, B2B activity rose at an annualized rate of 4.2% and consumer spending rose 1.5%.

“B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain,” stated Skousen. “There is no doubt that business activity has picked up in expectation of pro-business legislation in 2017.”

About GO and B2B Index

Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out the supply chain and business to business transactions in the production of intermediate inputs,” he notes. “That’s a big part of the economy. GO includes B2B activity that is vital to the production process. No one should ignore what is going on in the supply chain of the economy.”

Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990). A new third edition was published in late 2015, and is now available on Amazon.

The BEA’s decision in 2014 to publish GO on a quarterly basis in its “GDP by Industry” data is a major achievement in national income accounting. GO is the first output statistic to be published on a quarterly basis since GDP was invented in the 1940s.

With GO and GDP being produced on a timely basis, the federal government now offers a complete system of accounts. As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Skousen adds, “Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and the business cycle, and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually only about a third of economic activity, not two-thirds that is often reported by the media. As the chart above demonstrates, business spending is in fact almost twice the size of consumer spending in the US economy.”

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations at skousenpub@gmail.com.

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[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are fabricated and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the 2017 1st quarter is $33.3 trillion. By including gross sales at the wholesale and retail level, the adjusted GO is $41.2 trillion in Q1 2017. Thus, the BEA omits $7.9 trillion in business-to-business (B2B) transactions in its GO statistics. We include them as a legitimate economic activity that should be accounted for in GO, which we call Adjusted GO. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.

Washington, DC (Friday, April 21, 2017): Gross output (GO), the top line of national income accounting, increased sharply and much faster than GDP in the fourth quarter 2016, indicating a robust economy for 2017. “Whenever GO grows faster than GDP, it’s a good sign of economic recovery,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University who has long championed GO as a vital macro statistic.

Moreover, the Skousen B2B Index, a measure of business spending throughout the supply chain, skyrocketed in the fourth quarter, indicating a sharp recovery in business activity following the November presidential election of Donald Trump. B2B transactions rose at an annual rate of 8.4% in the fourth quarter, 5.8% in real terms, the faster rate in years.

Based on data released today by the BEA and adjusted to include all sales throughout the production process, nominal adjusted GO (GO*) increased at an annualized rate of 6.2% in the fourth quarter of 2016, which is 30% higher than the growth rate in the previous quarter [1]. Nominal adj. GO for the entire year (2016) advanced 4.1%, or 2.4% in real terms, substantially faster than GDP.
Nominal GDP, the bottom line of national income accounting, rose at an annualized rate of 4.16% in the fourth quarter, slightly lower than the growth rate from the third quarter. For the entire year (2016), nominal GDP advanced 3.9% or 2.1% in real terms.

Adjusted GO reached $40.6 trillion and exceeded the $40 trillion mark for the first time ever. In the fourth quarter, the Adjusted GO was more than double the size of GDP ($18.87 trillion), which measures final output only.

It is not just that the total economy is showing signs of growth. Industries in the early stages of production, which tend to be leading economic indicators, expanded at a higher rate than the overall economy. While the early stages of production – agriculture, forestry, fishing, hunting, mining, construction and manufacturing – accounted for a 26% share of GO, those combined sectors contributed 35% of the growth in the fourth quarter.

Supply Chain Activity on the Increase

Supply chain activity among various sectors was mostly positive, with only a few declining sectors. After reversing two quarters of double-digit declines in the third quarter, the mining sector enjoyed a 30.2% annualized increase in the fourth quarter. Utilities were down 5.5% for the quarter. The construction sector grew at a much faster pace of 7.7% in the fourth quarter when compared to a 2.57% third quarter boost.

The manufacturing sector accounts for an 18% share of total Gross output. Therefore, the sector has a significant impact on the overall performance of GO. The fourth quarter manufacturing increase of 7.6% is more than double of previous quarter’s growth rate. Another sector with an 18% share of GO is the Finance, insurance, real estate, rental and leasing sector, which rose 3.9% in the fourth quarter.

Professional and business services sector made another positive contribution and increased 4.3% for the quarter. Health care and social sciences sector reversed its decline from the third quarter and returned to the positive side in the fourth quarter with a 9.3% increase. The Retail sector and the Wholesale sector extended their growth records from the previous period with 6.6% and 8.2% increases, respectively.

Total government spending (11% share of total GO) increased slightly (+2%). This increase was driven by the growth in Local government spending, which rose by 3.3% in the fourth quarter while federal spending declined 1%.

Gross output (GO) and GDP are complementary statistics in national income accounting. GO is an attempt to measure the “make” economy; i.e., total economic activity at all stages of production, similar to the “top line” (revenues/sales) of a financial accounting statement. In April 2014, the BEA began to measure GO on a quarterly basis along with GDP.

Gross domestic product (GDP) is an attempt to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government. GDP is similar to the “bottom line” (gross profits) of an accounting statement, which determined the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP. During the financial crisis of 2008-09, GO fell much faster than GDP, and afterwards, recovered more quickly than GDP. Still, it wasn’t until late 2013 that GO fully recovered from its peak in 2007. The fact that the adjusted GO continued to grow faster than GDP is a positive sign.

Business Spending (B2B) Grows Faster Than Consumer Spending

We have also created a new business-to-business (B2B) index based on GO data. It measures all the business spending in the supply chain and new private capital investment. Nominal B2B activity increased 8.4% to $23.3 trillion. Meanwhile, consumer spending rose 5.5% to $13 trillion in the fourth quarter. In real terms, B2B activity was up 5.8% and consumer spending increased 3.4%.

“B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain,” stated Skousen. “There is no doubt that business activity has picked up in expectation of pro-business legislation in 2017.”

Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out the supply chain and business to business transactions in the production of intermediate inputs,” he notes. “That’s a big part of the economy. GO includes B2B activity that is vital to the production process. No one should ignore what is going on in the supply chain of the economy.”
Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990). A new third edition was published in late 2015, and is now available on Amazon.

Click here: Structure of Production on Amazon
The BEA’s decision in 2014 to publish GO on a quarterly basis in its “GDP by Industry” data is a major achievement in national income accounting. GO is the first output statistic to be published on a quarterly basis since GDP was invented in the 1940s.

With GO and GDP being produced on a timely basis, the federal government now offers a complete system of accounts. As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Skousen adds, “Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and the business cycle, and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually only about a third of economic activity, not two-thirds that is often reported by the media. As the chart above demonstrates, business spending is in fact almost twice the size of consumer spending in the US economy.”
Note: Ned Piplovic assisted in providing technical data for this release.

For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:
Mark Skousen, “At Last, a Better Way to Economic Measure” lead editorial, Wall Street Journal, April 23, 2014: http://on.wsj.com/PsdoLM

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations at skousenpub@gmail.com.
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[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are fabricated and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the 2016 4th quarter is $32.8 trillion. By including gross sales at the wholesale and retail level, the adjusted GO is $40.6 trillion in Q4 2016. Thus, the BEA omits $7.8 trillion in business-to-business (B2B) transactions in its GO statistics. We include them as a legitimate economic activity that should be accounted for in GO, which we call Adjusted GO. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.

Washington, DC (Thursday, January 19, 2017): Gross output (GO), the top line of national income accounting, increased at a 4.6% annualized rate in the third quarter of 2016, according to data released today by the Bureau of Economic Analysis. Adjusted GO reached almost $40 trillion ($39.8 trillion) in the 3rd quarter 2016.

It is a second consecutive quarterly increase, indicating a sustained recovery as we enter 2017. Moreover, almost all of the industries, including the early stages of production, showed positive performance.

The Skousen business-to-business (B2B) Index, a measure of business spending throughout the supply chain, also increased for the second quarter in a row, after showing a decline of three consecutive quarters reversed in Q2 2016. The B2B Index change versus the prior quarter, in nominal terms, is an annualized 3.4%.

Based on data released by the BEA today and adjusted to include all sales throughout the production process, nominal adjusted GO increased 4.6% in the 3rd quarter of 2016, matches the same increase from the 2nd quarter of 2016[1]. Adjusted GO reached almost $40 trillion ($39.8 trillion) in the 3rd quarter, more than double the size of GDP ($18.65 trillion), which measures final output only. Nominal GDP, the bottom line of national income accounting, rose at a 4.4% annualized rate.

Supply chain activity varied among various sectors significantly in the 3rd quarter, but was mostly positive, especially in the early-stages of production. Mining activity reversed two quarters of double-digit declines and increased 22% in Q3 2016. Utilities managed a 25% annualized increase in the third quarter. The construction sector showed a minor Q3 increase of 2.6%. However, that is significantly better than the 7.5% decline in the second quarter.

While the manufacturing sector increased only 3.7%, it was a major contributor to positive results in Q3 because the manufacturing sector accounted for an 18% share of total GO. With a 6.9% increase and a 7% share of total GO, the finance and insurance sector was another significant contributor to overall growth.

The information sector reversed course again and increased 8.1% after a 2.3% decline of in Q2.

Professional and business services sector made a positive contribution and increased 4.4%, improving on the 3.6% growth rate from Q2. After increasing at 7.5% in Q1 and almost 10% in Q2 the Health care and social sciences sector reversed course and declined slightly by 0.4%

While the Retail sector’s increase improved on previous quarter’s performance (3.5% in Q3 vs. 1.75% in Q2), the Wholesale sector rose almost 4% reversing the 1.80% decline from the previous quarter. The positive contribution by the wholesale sector is another indicator that spending in early stages is improving.

Government spending (11% share of total GO) increased 4%, with federal spending growing a bit less (3.4%) than local government, which grew by 4.2%.

Gross output (GO) and GDP are complementary statistics in national income accounting. GO is an attempt to measure the “make” economy; i.e., total economic activity at all stages of production, similar to the “top line” (revenues/sales) of a financial accounting statement. In April 2014, the BEA began to measure GO on a quarterly basis along with GDP.

Gross domestic product (GDP) is an attempt to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government. GDP is similar to the “bottom line” (gross profits) of an accounting statement, which determined the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP. During the financial crisis of 2008-09, GO fell much faster than GDP, and afterwards, recovered more quickly than GDP. Still, it wasn’t until late 2013 that GO fully recovered from its peak in 2007. The fact that the adjusted GO continued to grow is a positive sign.

Real Business Spending (B2B) Shows Strong Growth

We also have created a new business-to-business (B2B) index based on GO data. It measures all of the business spending in the supply chain and new private capital investment. Nominal B2B activity increased at an annualized rate of 3.4% compared to the previous quarter to reach $22.7 trillion. Meanwhile, consumer spending rose at an annualized rate of 3.6% to $12.8 trillion in Q3 2016.

“The GO data and my own B2B Index demonstrate that total US economic activity is expanding robustly,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University. “B2B spending is in fact a pretty good indicator of where the economy is heading, since it measures spending in the entire supply chain, and it indicates balanced growth at this stage.”

Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out the supply chain and business to business transactions in the production of intermediate inputs,” he notes. “That’s a big part of the economy. GO includes B2B activity that is vital to the production process. No one should ignore what is going on in the supply chain of the economy.”

Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990). A new third edition was published in late 2015, and is now available on Amazon.

The BEA’s decision in 2014 to publish GO on a quarterly basis in its “GDP by Industry” data is a major achievement in national income accounting. GO is the first output statistic to be published on a quarterly basis since GDP was invented in the 1940s. With GO and GDP being produced on a timely basis, the federal government now offers a complete system of accounts. As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Skousen adds, “Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and the business cycle, and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually only about a third of economic activity, not two-thirds, which is often reported by the media. As the chart above demonstrates, business spending is in fact almost twice the size of consumer spending in the US economy.”

For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following: Mark Skousen, “At Last, a Better Way to Economic Measure” lead editorial, Wall Street Journal, April 23, 2014: http://on.wsj.com/PsdoLM

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations at skousenpub@gmail.com.

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________________________________________[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are fabricated and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the 2016 3rd quarter is $32.4 trillion. By including gross sales at the wholesale and retail level, the adjusted GO is $39.8 trillion in Q3 2016. Thus, the BEA omits $7.5 trillion in business-to-business (B2B) transactions in its GO statistics. We include them as a legitimate economic activity that should be accounted for in GO, which we call Adjusted GO. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.

Washington, DC (Thursday, November 3, 2016): Gross output, the top line of national income accounting, increased 1.1% in the second quarter of 2016, according to data released today by the Bureau of Economic Analysis. It is still sluggish and without indication of significant growth. While the overall economy showed signs of growth, industries in the early stages of production are struggling according to economic data released today.

The Skousen B2B Index, a measure of business spending throughout the supply chain, moved into positive territory after falling for three quarters in a row. The B2B Index change versus prior quarter in nominal term is currently at +1.1%. The small increase is a positive sign. However, unless the trend continues for the remainder of the year, the threat of a potential mild business recession still remains as we approach 2017.

Based on data released today by the BEA and adjusted to include all sales throughout the production process, nominal adjusted GO increased 1.1 % in the 2nd quarter of 2016, slightly better than the increase in the 1st quarter of 2011 (+0.3%) [1]. Adjusted GO was almost $39.5 trillion in the 2nd quarter, more than double the size of GDP ($18.45 trillion), which measures final output only. Nominal GDP, the bottom line of national income accounting, rose 0.92% in the 2nd quarter versus the previous quarter (3.7% annualized).

Supply chain activity varied among various sectors significantly in the 2nd quarter, with significant declines in early-stage production. Compared in real terms to the previous quarter, mining activity fell by another -12.6% in Q2 after declining -18.7% in Q1. The Construction sector declined -7.5% after showing a +9.4% growth in the previous quarter. The information sector also reversed course and declined -2.3% in Q2 after a 5.6 increase in Q1 2016.

The Professional, scientific, and technical services sector made a positive contribution and increased 3.6%. However, that is less than half the growth rate (+8.8%) from Q1. The sector that increased more than previous quarter was Health care and social sciences, which grew by almost 10%. This is higher by a third compared to the Q1 result of +7.5%

While the Retail sector was slightly higher (1.78%) in Q2 2016 versus the previous quarter, the Wholesale sector was down (-1.80%). This is another indicator that spending in early stages is still struggling.

Government spending (11% share of total GO) was flat (+0.13%) with federal spending growing a bit more (0.21%) than local government, which grew only 0.09%.

Gross output (GO) and Gross domestic product (GDP)are complementary statistics in national income accounting. GO is an attempt to measure the “make” economy; i.e., total economic activity at all stages of production, similar to the “top line” (revenues/sales) of a financial accounting statement. In April 2014, the BEA began to measure GO on a quarterly basis along with GDP.

GDP is an attempt to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government. GDP is similar to the “bottom line” (gross profits) of an accounting statement, which determined the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP. During the financial crisis of 2008-09, GO fell much faster than GDP, and afterwards, recovered more quickly than GDP. Still, it wasn’t until late 2013 that GO fully recovered from its peak in 2007. The fact that the adjusted GO reversed course and grew faster than GDP is a positive sign. However, GO growth will have to increase significantly in upcoming quarters to suggest that the economic recovery continues into 2017.

Real Business Spending (B2B) Suffers Slight Decline

We have also created a new business-to-business (B2B) index based on GO data. It measures all the business spending in the supply chain and new private capital investment. Nominal B2B activity increased 1.1% compared to the previous quarter to $22.5 billion. Meanwhile, consumer spending rose 1.6% to $12.7 billion in Q2.

“The GO data and my own B2B Index demonstrate that total US economic activity has picked up slight,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University. “B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain, and it indicates tepid growth at this stage, despite desperate efforts by the Federal Reserve and the federal government to stimulate the economy.”

Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out the supply chain and business to business transactions in the production of intermediate inputs,” he notes. “That’s a big part of the economy. GO includes B2B activity that is vital to the production process. No one should ignore what is going on in the supply chain of the economy.”

Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990). A new third edition was published in late 2015, and is now available on Amazon.

The BEA’s decision in 2014 to publish GO on a quarterly basis in its “GDP by Industry” data is a major achievement in national income accounting. GO is the first output statistic to be published on a quarterly basis since GDP was invented in the 1940s. With GO and GDP being produced on a timely basis, the federal government now offers a complete system of accounts. As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Skousen adds, “Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and the business cycle, and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually only about a third of economic activity, not two-thirds that is often reported by the media. As the chart above demonstrates, business spending is in fact almost twice the size of consumer spending in the US economy.”

For More Information

The GO data released by the BEA can be found at www.bea.gov under “Quarterly GDP by Industry.” Click on interactive tables “GDP by Industry” and go to “Gross Output by Industry.” Or go to this link directly: http://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=3&isuri=1&5102=15

For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations at skousenpub@gmail.com.

# # #

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[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are fabricated and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the 2016 2nd quarter is $32 trillion. But by including gross sales at the wholesale and retail level, the adjusted GO is $39.5 trillion in Q2 2016. Thus, the BEA omits $7.5 trillion in business-to-business (B2B) transactions in its GO statistics. We include them as a legitimate economic activity that should be accounted for in GO, which we call Adjusted GO. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.

Today (Columbus Day) I submitted my paper “GO Beyond GDP: Introducing Gross Output as a Top-Line in National Income Accounting” to the American Economic Review. I think it appropriate to submit it on Columbus Day as I believe GO is a major discovery in national income accounting and one of the most important macroeconomic event since GDP was invented in the 1940s. I consider GO the missing piece of the macroeconomic puzzle. By including the supply chain, GO restores the importance that the business sector — the entrepreneur, the inventor and capital investment — plays in growing the economy. It debunks the idea that “consumer spending drives the economy.” It turns out that business (B2B) spending is almost double the size of consumer spending in the US, and far more cyclical.

Now, the question is, will the AER editors recognize this paradigm shift in macroeconomics? It certainly helps that the government — Bureau of Economic Analysis (BEA) — has adopted and is now publishing GO on a quarterly basis, just like GDP. It’s also being added to next edition of many of the major economics textbooks.

Top line (GO) and bottom line (GDP) in national income accounting

2016 Q1 Adjusted Gross Output (GO*) versus GDP

Here is a short summary of my paper:

Government starting measure gross output (GO): In April 2014, the Bureau of Economic Analysis began publishing a new measure of the aggregate economy called gross output (GO), the first macro measure to be released on a quarterly basis since gross domestic product (GDP) was invented in the 1940s.

What is GO? GO is a broader measure of economic activity, adding up sales/revenues at all stages of production, and serves as a complement to GDP.

The BEA now defines GDP in terms of GO minus intermediate production. GO attempts to measure the production process or the “make” economy while GDP is a measure of final goods and services, or the “use” economy.

New top line in national income account: I make the case that GO and GDP together should play a vital role in national accounting statistics, much like the top line (sales) and bottom line (earnings) in quarterly financial statements.

Top line and bottom line accounting are employed in compiling the quarterly earnings reports of publicly-traded companies.
Does consumer spending drive the economy? The media often reports that “consumer spending is two-thirds of the economy,” based on a misuse of GDP as a measure of the economy. The source of the fallacy is that GDP measures final spending only. GO is the more complete measure of total economic activity. It demonstrates that business spending is a significantly larger segment of the economy than consumer spending is. In fact, business spending (B2B) is almost double the size of consumer spending. Business spending is 60% of total economic activity, while consumer spending is only about one third (not two-thirds as normally reported).

2016 Q1 Skousen B2B Index

GO and GO by Industry may be helpful in forecasting the direction of the economy. Business spending tends to be more volatile than GDP. Earlier-stage and intermediate inputs in GO may also be helpful in forecasting the direction of economic growth.

In this paper, I argue that gross output should be the starting point of national income accounting. GO is also more highly correlated with leading macroeconomic indicators of the business cycle than GDP is and is, additionally, more intellectually consistent with the economy-wide growth at all stages of production and distribution that growth theory attempts to model.

What Others are Saying about Gross Output

and “The Structure of Production”

Financial Media

“This is a great leap forward in national accounting. Gross Output, long advocated by Mark Skousen, will have a profound and manifestly positive impact on economic policy.”– Steve Forbes, Forbes magazine (2014)

“Economist Mark Skousen can be credited with pioneering the concept of gross output in his 1990 book, The Structure of Production. Among other things, Skousen notes that GO acts as a more sensitive seismograph in registering the shock of business cycles.”– Gene Epstein, Economics Editor, Barron’s

“The next economics will have to be centered on supply and the factors of production rather than being functions of demand. I’ve read Mark Skousen’s monumental book twice, and it comes the closest to achieving this goal.”– Peter F. Drucker, Claremont Graduate University

“National income accounting has long been unfathomably flawed and worse by the decade but Mark Skousen’s introduction of gross output (GO) has been a big step forward in portraying a more total picture of the economy and where and when it’s vulnerable. Kudos to Mark for it being adopted.”– Ken Fisher, CEO, Fisher Investments, Forbes columnist

“GO is better correlated with financial-price movements than most of the other indicators. It tends to portray the economy as more cyclical than real GDP does, the recession of 2008-09 as deeper, and the recovery as slower. The universal use of real GDP as a measure of the economy’s vitality is subject to misunderstandings, pitfalls and criticism — especially in the short run. GDP includes only ‘final’ goods and services, leaving out the huge economy that consists of businesses buying and selling intermediate goods to one another.”– David Ranson, chief economist, H. C. Wainwright Economics.

Government Officials

“Gross Output provides an important new perspective on the economy and a powerful new set of tools of analysis, one that is closer to the way many businesses see themselves.”– Steve Landefeld, director, Bureau of Economic Analysis (2014)

Academic Economists

“Now, it’s official. With Gross Output (GO), the U.S. government will provide official data on the supply side of the economy and its structure. How did this counter revolution come about? There have been many counter revolutionaries, but one stands out: Mark Skousen of Chapman University. Skousen’s book The Structure of Production, which was first published in 1990, backed his advocacy with heavy artillery. Indeed, it is Skousen who is, in part, responsible for the government’s move to provide a clearer, more comprehensive picture of the economy, with GO.”– Steve H. Hanke, Johns Hopkins University (2014)

“Congratulations on your work. It has been a long slog to get the national accounts to introduce innovative measures, and Steve Landefeld [long-time director of the BEA] has been a superstar in this respect… This will open up the potential for new insights into the behavior of the economy.”– William D. Nordhaus, Yale University

“The more data the better, and your GO gives us valuable extra information. I wish you all the best with your new top-line measure of the economy.”– Jeremy Siegel, Wharton School of Finance, University of Pennsylvania

“The development of Gross Output is a good idea and a better measure [of economic activity] than GDP.”– David Colander, Eastern Economic Journal (2014)

“I am enormously impressed with the care and integrity which Skousen has accomplished his work.”– Israel Kirzner, New York University

“The two most important works on ‘Austrian’ capital theory since Hayek’s winning of the Nobel Prize are Roger Garrison’s Time and Money and Mark Skousen’s Structure of Production. All members of the Austrian School should take his book seriously.”– Richard Ebeling, Northwood University

“I’m a big fan of GO.”– Garrett Jones, George Mason University

“A good idea!”– Alan Blinder (Princeton University)

“Skousen’s Structure of Production should be a required text at our leading universities.”– John O. Whitney, Emeritus Professor in Management Practice, Columbia University

Washington, DC (Thursday, January 21, 2016): Gross output (GO), the new measure of U. S. economic activity published by the Bureau of Economic Analysis, slowed significantly in the 3rd quarter of 2015. And the Skousen B2B Index actually fell slightly in real terms in the 3rd quarter. Both data suggest the possibility of a mild recession developing in 2016.

Based on data released today by the BEA and adjusted to include all sales throughout the production process, real GO grew by only 2.5% in the 3rd quarter of 2015, almost half the rate in the 2nd quarter (4.6%), but more than real GDP (2.0%) in the 3rd quarter[1] Adjusted GO reached $39.2 trillion in the 3rd quarter, more than double the size of GDP ($18.0 trillion).

In nominal terms, adjusted GO growth rate declined from 6.3% in Q2 to 2.3% in Q3. In the same period GDP fell from 6.0% to 2.7%, illustrating the higher degree of volatility of GO compared to GDP (see chart below). The higher volatility indicates that GO might be a better indicator of economic activity than GDP, since GO includes economic activity that GDP leaves out.

Supply chain activity varied significantly in the 3rd quarter: Mining activity continued to fall by 7.6% (on top of declining 26% in Q2), but utilities reversed course and rose 7.2%. Most other sectors grew, led by construction, which was up 7.6%. However, the wholesale market fell 6.6%, while retail trade rose 7.4% in nominal terms. Overall, price inflation remained tepid, declining 0.1%.

GO and GDP are complementary statistics in national income accounting. Gross output (GO) is an attempt to measure the “make” economy; i.e., total economic activity at all stages of production, similar to the “top line” (revenues/sales) of an accounting statement. In April, 2014, the BEA began to measure GO on a quarterly basis along with GDP.

Gross domestic product (GDP) is an attempt to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government. GDP is similar to the “bottom line” (earnings) of an accounting statement, which determined the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP. During the financial crisis of 2008-09, GO fell much faster than GDP, and afterwards, recovered more quickly than GDP. Still, it wasn’t until late 2013 that GO fully recovered from its peak in 2007. The fact that the adjusted GO is now growing slower than GDP suggests that the economic recovery is losing steam and may end up in a mild recession in 2016.

Real Business Spending (B2B) Suffers Slight Decline

We have also created a new business-to-business (B2B) index based on GO data. It measures all the business spending in the supply chain and new private capital investment. B2B activity rose only 0.2% in nominal terms in the 3rd quarter, down from 1% growth in the 2nd quarter, and actually fell in real terms by 0.1%. According to the Skousen B2B Index, business spending rose to $22.83 trillion in nominal terms compared to the 2nd quarter of $22.78 trillion. Meanwhile, consumer spending rose 1.1% (0.8% in real term) in Q3.

“The GO data and my own B 2B Index demonstrate that total US economic activity has slowed dramatically. A recession could develop in 2016, although I expect it to be mild,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University. “B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain, and it indicates tepid growth and maybe even a downturn.”

Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out the supply chain and business to business transactions in the production of intermediate inputs,” he notes. “That’s a big part of the economy.

GO includes B2B activity that is vital to the production process. No one should ignore what is going on in the supply chain of the economy.”

Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990). A new third edition was just published in late 2015, and is now available on Amazon.

The BEA’s decision in 2014 to publish GO on a quarterly basis in its “GDP by Industry” data is a major achievement in national income accounting. GO is the first output statistic to be published on a quarterly basis since GDP was invented in the 1940s. With GO and GDP being produced on a timely basis, the federal government now offers a complete system of accounts. As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Skousen adds, “Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and the business cycle, and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually only about a third of economic activity, not two-thirds that is often reported by the media. As the chart above demonstrates, business spending is in fact almost twice the size of consumer spending in the US economy.”

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations, 1-201-788-6623, or email him at skousenpub@gmail.com.

# # #

________________________________________
[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are fabricated and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the 2015 3rd quarter is $31.6 trillion. But by including gross sales at the wholesale and retail level, the adjusted GO is $39.2 trillion. Thus, the BEA omits $7.6 trillion in business-to-business (B2B) transactions in its GO statistics. We include them as a legitimate economic activity that should be accounted for in GO. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.

Mark Skousen, “Linking Austrian and Keynesian Economics: A Variation of a Theme” (this is my first refereed paper on Gross Output, the new national statistic the federal government is now publishing quarterly along with GDP).

Washington, DC (Thursday, November 5, 2015): Gross output (GO), a broader measure of U. S. economic activity published by the Bureau of Economic Analysis, accelerated in the 2nd quarter of 2015, indicating a more robust economy than GDP data reports.

Based on data released today by the BEA and adjusted to include all sales throughout the production process, real GO grew by 4.6% in the 2nd quarter of 2015, considerably more than the 3.9% annualized growth rate of real GDP.[1] Adjusted GO reached $39.0 trillion in the 2nd quarter, more than double the size of GDP ($17.9 trillion).

In nominal terms, adjusted GO growth rate went from -2.5% in Q1 to 6.3% in Q2. In the same period GDP went from 0.8% to 6.0%, illustrating the higher degree of volatility of GO compared to GDP (see chart below). The higher volatility indicates that GO might be a better indicator of economic activity than GDP, since GO includes economic activity that GDP leaves out.

However, early-stage activity continued to show weakness in the 2nd quarter: Mining activity fell 26% and utilities declined 16%. However, most other sectors grew, led by construction, which was up 24%. Wholesale and retail sales also rose sharply, probably benefiting from lower fuel prices. Overall, price inflation remained tepid, rising only 1.4%.

GO and GDP are complementary statistics in national income accounting. Gross output (GO) is an attempt to measure the “make” economy; i. e., total economic activity at all stages of production, similar to the “top line” (revenues/sales) of an accounting statement. In April, 2014, the BEA began to measure GO on a quarterly basis along with GDP.

Gross domestic product (GDP) is an attempt to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government. GDP is similar to the “bottom line” (earnings) of an accounting statement, which determined the “value added” or the value of final use.

GO tends to be more sensitive to the business cycle, and more volatile, than GDP. During the financial crisis of 2008-09, GO fell much faster than GDP, and afterwards, recovered more quickly than GDP. Still, it wasn’t until late 2013 that GO fully recovered from its peak in 2007. The fact that the adjusted GO is still growing slightly faster than GDP suggests that the economic recovery is on-going.

Business Spending (B2B) Rises Only 1%

We have also created a new B2B Index based on GO data. B2B activity rose only 1% in the second quarter. According to the new Skousen B2B Index, business spending rose to $22.7 trillion in nominal terms compared to the 1st quarter of $22.4 trillion. Meanwhile, consumer spending remained stable.

“The GO data and my own B2B Index demonstrate that total US economic activity has picked up, and a recession has been avoided for now,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University. “B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain, and it indicates continued growth.”

Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out a big part of the economy, business to business transactions in the production of intermediate inputs,” he notes. “GO includes most B2B activity that is vital to the production process. No one should ignore what is going on in the supply chain of the economy.”

Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990). A new third edition was just published in late 2015, and is now available on Amazon.

The BEA’s decision in 2014 to publish GO on a quarterly basis in its “GDP by Industry” data is an important achievement in national income accounting. With GO and GDP being produced on a timely basis, the federal government now offers a complete system of accounts. As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in their book, A New Architecture for the U. S. National Accounts, “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Skousen adds, “Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and the business cycle, and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually less than 40% of economic activity, not the 70% figure that is reported by the media. Business spending is in fact almost twice the size of consumer spending in the US economy.”

The GO data released by the BEA can be found at www.bea.gov under “Quarterly GDP by Industry.” Click on interactive tables “GDP by Industry” and go to “Gross Output by Industry.” Or go to this link directly: http://www.bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=3&isuri=1&5102=15

For more information on Gross Output (GO), the Skousen B2B Index, and their relationship to GDP, see the following:

To interview Dr. Mark Skousen on this press release, contact him at mskousen@chapman.edu, or Ned Piplovic, Media Relations, 1-201-788-6623, or email him at skousenpub@gmail.com.

# # #

________________________________________
[1] The BEA currently uses a limited measure of total sales of goods and services in the production process. Once products are transformed and packaged at the manufacturing stage, the BEA’s GO only adds “net” sales at the wholesale and retail level. Its official GO for the 2015 2nd quarter is $31.4 trillion. But by including gross sales at the wholesale and retail level, the adjusted GO is $38.9 trillion. Thus, the BEA omits over $7 trillion in business-to-business (B2B) transactions in its GO statistics. We include them as a legitimate economic activity that should be accounted for in GO. See the new introduction to Mark Skousen, The Structure of Production, 3rd ed. (New York University Press, 2015), pp. xv-xvi.

Federal Government Introduces a New Macro Statistic: A Triumph in Supply-side “Austrian” Economics and Say’s Law

Mark Skousen, The Structure of Production. New York University Press. Third revised edition, 2015, 402 pages. $26 paperback. Available on Kindle.

To buy the book: NYU, Amazon
Quarterly data for Gross Output can be found at the BEA site here.
For Skousen’s latest quarterly report on GO, see this.

From the cover:

In 2014, the U. S. government adopted a new quarterly statistic called gross output (GO), the most significance advance in national income accounting since gross domestic product (GDP) was developed in the 1940s. The announcement comes as a triumph for Mark Skousen, who advocated GO twenty-five years ago as an essential macroeconomic tool and a better way to measure the economy and the business cycle. Now it has become an official statistic issued quarterly by the Bureau of Economic Analysis at the U. S. Department of Commerce.

Since the announcement, Gross Output has been the subject of editorials in the Wall Street Journal, Barron’s, and other financial publications, analyzed in the Eastern Economic Journal, and is now being included in leading economics textbooks, such as Roger Leroy Miller’s new 18th edition of Economics Today. Economists are now producing GO data for other countries, including the UK and Argentina.

In this third printing of Structure of Production, Skousen shows why GO is a more accurate and comprehensive measure of the economy because it includes business-to-business (B2B) transactions that move the supply chain along to final use. (GDP measures the value of finished goods and services only, and omits most B2B activity.) GO is an attempt to measure spending at all stages of production.

As Dale Jorgenson, Steve Landefeld, and William Nordhaus conclude in “A New Architecture for the U. S. National Accounts,” “Gross output [GO] is the natural measure of the production sector, while net output [GDP] is appropriate as a measure of welfare. Both are required in a complete system of accounts.”

Skousen states, “Gross Output fills in a big piece of the macroeconomic puzzle. It establishes the proper balance between production and consumption, between the ‘make’ and the ‘use’ economy, between aggregate supply and aggregate demand. I make the case that GO and GDP complement each other as macroeconomic tools and that both should play a vital role in national accounting statistics, much like top line and bottom line accounting are employed to providing a complete picture of quarterly earnings reports of publicly-traded companies.”

He concludes, “Because GO attempts to measure all stages of production (known as Hayek’s triangle), it is a monumental triumph in supply-side ‘Austrian’ economics and Say’s law.”

Using GO, Skousen demonstrates that consumer spending does not account for two-thirds of the economy, as is often reported in the financial media, but is really only 30-40% of total economic activity. Business spending (B2B) is over 50% of the economy, and thus is far larger and more important than consumer spending, more consistent with economic growth theory, and a better measure of the business cycle. (See chart below.)

About the Author

MARK SKOUSEN is a Presidential Fellow at Chapman University in California. He has taught economics and finance at Columbia Business School, and is a former economic analyst for the Central Intelligence Agency. He received his Ph. D. in economics at George Washington University (1977). He is the editor-in-chief of the investment newsletter Forecasts & Strategies, and author of several books, including The Making of Modern Economics.

Reviews

“Now, it’s official. With Gross Output (GO), the U.S. government will provide official data on the supply side of the economy and its structure. How did this counter revolution come about? There have been many counter revolutionaries, but one stands out: Mark Skousen of Chapman University. Skousen’s book The Structure of Production, which was first published in 1990, backed his advocacy with heavy artillery. Indeed, it is Skousen who is, in part, responsible for the government’s move to provide a clearer, more comprehensive picture of the economy, with GO.” — Steve H. Hanke, Johns Hopkins University (2014)

“The development of Gross Output is a good idea and a better measure [of economic activity] than GDP.” — David Colander, Eastern Economic Journal (2014)

“This is a great leap forward in national accounting. Gross Output, long advocated by Mark Skousen, will have a profound and manifestly positive impact on economic policy.” –Steve Forbes, Forbes magazine (2014)

“Skousen’s Structure of Production should be a required text at our leading universities.” (referring to second edition) –John O. Whitney, Emeritus Professor in Management Practice, Columbia University

“Monumental. I’ve read it twice!” (referring to first edition, published in 1990) — Peter F. Drucker, Clermont Graduate University

“I am enormously impressed with the care and integrity which Skousen has accomplished his work.” — Israel Kirzner, New York University

For Interviews or Lectures

To interview Dr. Mark Skousen or arrange a lecture, contact him at mskousen@chapman.edu, or Valerie Durham, Media Relations, 410-570-0535, or email her at vdurham@skousenpub.com.

Washington, DC (Thursday, April 23, 2015): Gross Output, a broader measure of U. S. economic activity published by the Bureau of Economic Analysis, grew much more slowly in the 4th quarter of 2014, confirming a slowdown in the economy into 2015. According to today’s BEA release, real GO advanced at an annualized rate of only 2.6% to $31.4 trillion by the end of 2014, half the rate of the 5.2% jump in the 3rd quarter.

Gross Output (GO) is a measure of sales or receipts of all industries throughout the production process, including business to business transactions (B2B). Most B2B activity is left out of GDP statistics.

Since the financial crisis of 2008-09, GO has risen faster than GDP, and that continued to be the case in the 4th quarter. GO advanced at a slightly faster pace than GDP. Gross Domestic Product (GDP), which measures the value of final goods and services only, rose 2.2% in real terms to $17.7 trillion in the fourth quarter. The fact that GO is still growing faster than GDP suggests that the economic recovery is still in place, and a recession is unlikely.

Business Spending (B2B) Slows

B2B activity also continued to slow into 2015. According to the new Skousen B2B Index, business spending increased at a lower annualized rate (2.5%) compared to the 3rd quarter. See the chart below.

“The GO data and my own B2B Index demonstrate that total US economic activity has slowed significantly, but not enough to cause an actual recession,” stated Mark Skousen, editor of Forecasts & Strategies and a Presidential Fellow at Chapman University. “B2B spending is in fact a pretty good indicator of where the economy is headed, since it measures spending in the entire supply chain.”

Skousen champions Gross Output as a more comprehensive measure of economic activity. “GDP leaves out a big part of the economy, business to business transactions in the production of intermediate inputs,” he notes. “GO includes most B2B activity that is vital to the production process.”

Skousen first introduced Gross Output as a macroeconomic tool in his work The Structure of Production (New York University Press, 1990, new third edition forthcoming in July, 2015). Now the BEA publishes GO on a quarterly basis in its “GDP by Industry” data, the first aggregate statistic to be published on a quarterly basis since GDP was introduced in the 1940s.

“Gross Output and GDP are complementary aspects of the economy, but GO does a better job of measuring total economic activity and demonstrates that business spending is more significant than consumer spending,” he says. “By using GO data, we see that consumer spending is actually less than 40% of economic activity, not the 70% figure that is reported by the media.”

According to the Skousen B2B (business to business) Index, total business spending throughout the production process reached $23.0 trillion in the 4th quarter 2014, compared to personal consumption expenditures of $12.1 trillion. “Thus, we see that business spending is almost twice the size of consumer spending in the US economy,” concludes Skousen.

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